CoStar Group looks to acquire OnTheMarket and grow it rapidly to top Spot
Backed by Costar Group’s fortress balance sheet, the acquisition seeks to create number one UK property portal by combining the strengths of leading commercial property site, CoStar, with OnTheMarket’s large network of agents, and Homes.com, a leading U.S. residential portal.
PRESS RELEASE WASHINGTON – October 2023 — CoStar Group, Inc. (NASDAQ: CSGP), a leading global provider of online real estate marketplaces, information, and analytics, announced a proposal today to acquire OnTheMarket, the third most visited residential property portal in the United Kingdom, for £1.10 per share in cash or approximately £100 million.
OnTheMarket was founded by agents in 2013 to provide a competitive alternative to the existing UK property portals. Since then, it has successfully developed a large network of agents and property listings by taking an agent-friendly approach. Today, OnTheMarket has over 13,000 agent advertisers and attracts high intent leads at a fraction of the cost of other UK portals.
CoStar Group, is an S&P 500 and NASDAQ 100 company and is a leading global operator of property portals. CoStar’s websites drew approximately 280 million visits in September, roughly twice the monthly visits reported by Rightmove . CoStar Group operates one of the most successful and heavily trafficked residential portal networks in the U.S. with 240 million visits to Homes.com and Apartments.com in September1. CoStar Group has operated the top commercial property information, analytics and news site, CoStar, for two decades, as well as LoopNet, the leading commercial property portal in the UK.
CoStar Group collects information in approximately 190 countries, has clients in over 135 countries, and operates 28 property portals, investing billions creating the best consumer website experiences. CoStar Group is a proven product and technology market leader, backed by almost 1,200 software developers who work with the industry’s best content, data, and research to continually build new tools that improve the efficiency of property markets and serve hundreds of millions of users every month.
CoStar Group has a track record of acquiring strong-performing property portals that are not the number one players and investing and building them into the most successful portals serving their market. CoStar Group acquired 5th place U.S. residential rental platform Apartments.com in 2014 and grew it to the number one player in the U.S. with revenue now approaching a billion dollars. CoStar Group recently acquired Homes.com, a 6th place residential property portal in the U.S. with 6 million unique visitors and turned it into the fastest growing U.S. residential portal with more than 100 million unique visitors in September of 2023. Homes.com is now the number two most trafficked residential marketplace in the U.S.
- 1 Unless otherwise noted, monthly visits are as of September 2023 according to Google Analytics.
- 2 Rightmove reports 140 million monthly visits, based on Google Analytics, 2021 full year average: https://www.rightmove.co.uk/c/display-advertising/
- 3 In September 2023, Homes.com surpassed 100 million monthly unique visitors, according to Google Analytics, exceeding Realtor.com’s 74 million monthly average unique visitors for its fiscal fourth quarter as reported in its earnings release on August 10, 2023, and Redfin’s 52 million monthly average unique visitors for the quarter ended June 30, 2023 as reported in its Form 10-Q filed August 3, 2023.
Andy Florance, Founder and Chief Executive Officer of CoStar Group, said: “We believe the acquisition of OnTheMarket represents an attractive and efficient entry point into the £8 trillion United Kingdom residential property market. We are excited to welcome the OnTheMarket team to the CoStar Group family.”
“OnTheMarket’s network of property professionals and breadth of advertiser relationships provide a strong foundation to compete with the dominant United Kingdom property portals,” continued Florance. “The combination of OnTheMarket’s large network of agents and access to listings, together with the marketplace experience and resources of CoStar Group, has the potential to create the leading agent-friendly player in the UK residential marketplace. We see OnTheMarket as an important step in expanding our Homes.com residential network not only in the UK, but across Europe. We believe the market opportunity in Europe is over $10 billion, and we intend to participate aggressively in developing and expanding our residential marketplace network.”
OnTheMarket is headquartered in London and has approximately 180 employees. Revenue for the twelve-month period ending July 31, 2023, was approximately £35 million, with adjusted EBITDA of £8 million . Based on enterprise value of approximately £87 million, transaction multiples for the trailing twelve-month period are 2.5x revenue and 11x Adjusted EBITDA. CoStar Group intends to invest £46.5 million into sales and marketing in the first full year following the commencement of the integration of the portal into CoStar’s network of residential marketplaces.
That amount represents six times OnTheMarket’s current annual media spend and more than three times the current annual media spend of Rightmove plc. The sales and marketing investment is the first stage of a multi-year investment program totaling hundreds of millions of pounds to drive more consumers to the OnTheMarket portal with the goal of significantly increasing the quantity of valuable leads to OnTheMarket’s agent clients.
Jason Tebb, CEO of OnTheMarket, said: “We are very much looking forward to joining the CoStar Group residential network. From a position of strength, the partnership will significantly accelerate our strategy with a clear target of becoming the market leader. Together we share a long history and strong commitment to agents, who will benefit from CoStar’s commitment to maintaining our fair and sustainable pricing model and greater opportunities to enhance their businesses.”
The transaction is expected to close in the fourth quarter of 2023 subject to shareholder approval and customary closing conditions. CoStar Group plans to discuss the OnTheMarket acquisition during the third quarter 2023 financial results conference call scheduled for October 24, 2023. The acquisition announcement and transaction information are outlined in the UK Takeover Code Rule 2.7 Announcement filing, which can be found at https://plc.onthemarket.com/recommended-cash-acquisition/.
- 4 Calculated as the sum of 1H FY2024 revenue of £17mm, per OnTheMarket’s FY2024 interim results announcement, and 2H FY2023 revenue, which is derived from Full Year FY2023 revenue of £35mm, per OnTheMarket’s FY2023 Annual Report, less 1H FY2023 revenue of £17mm, per the FY2024 interim results announcement.
- 5 Calculated as the sum of 1H FY2024 EBITDA of £3mm, per OnTheMarket’s FY2024 interim results announcement, and 2H FY2023 EBITDA, which is derived from Full Year FY2023 EBITDA of £8mm, per OnTheMarket’s FY2023 Annual Report, less 1H FY2023 EBITDA of £3mm, per the FY2024 interim results announcement.
- 6 Calculated as transaction equity value of £99mm based on OnTheMarket’s fully diluted share capital of 90.01mm per the Rule 2.7 announcement and the offer price of 110 pence; less cash on balance sheet of £11.5mm as per OnTheMarket’s 1H FY2024 interim results announcement.
- 7 Rightmove plc reported GBP 15-15.5 million in overall marketing budget in its Half Year Results 2023 Earnings Transcript.
What now for Rightmove? as Jeffries says Costar Group ambition to topple them is ‘credible’
As reported in The Times yesterday, ‘Giles Thorne, an industry analyst at Jefferies, the broker, said that the arrival of a “heavyweight new market entrant” could dent the popularity of Rightmove, by some way the largest property search portal in Britain. “CoStar has the stated ambition to displace Rightmove with OnTheMarket,” Thorne said. “On balance, the ambition looks credible.”
Rightmove shares dropped 82¼p, or 14.3 per cent, to 493¼p in the stock’s worst session since before the 2007-09 global financial crisis.
Given the above, it will be very interesting to see what the Rightmove board and C-suite do next, as doing nothing is definitely not an option. In the past Rightmove have always used the “Qu’ils mangent de la brioche” gambit – let them eat cake – attributed to Queen Marie Antoinette upon being told that the peasants had no bread. Soon after she was relieved of her head by madame guillotine.
It is going to be a fascinating ride in Q4 and Q1 for them for sure, as they contemplate how to take on the might of CoStar leveraging its strategy and spending power into OnTheMarket if the acquisition which looks set to happen does, this month.
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.